If I’d invested £1,000 when the IAG share price bottomed out, here’s what I’d have now

The IAG share price has recovered significantly in recent months, and even more so since it hit a low in 2022. Dr James Fox takes a closer look.

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The IAG (LSE:IAG) share price hit a post-pandemic low of 94p in September 2022. But things have improved for International Consolidated Airlines Group (to give it its full name) since then, both in terms of the company’s performance and broader sentiment towards UK-listed stocks. September 2022 really was a challenging time.

Today, just over 18 months from the post-pandemic nadir, IAG shares are trading for 172p. That marks an 82.9% increase. So if I’d invested £1,000 in IAG stock back then, today I’d have £1,829. That’s quite the investment.

Of course, it’s worth highlighting that UK equities, and IAG shares, were cheap for a reason. Liz Truss’s economic plans had undermined confidence in the UK economy, and the aviation industry hadn’t experienced the forecast recovery — Russia’s war in Ukraine had sent aviation fuel prices soaring.

It’s also interesting to note where IAG shares were before the pandemic. The stock traded above 400p until mid-February 2020, and then we started learning a bit more about the virus that had put China into lockdown.

What about now?

IAG shares performed well in March on the back of broker upgrades. Several institutions suggested that IAG could see some positive catalysts in the coming months. In fact, the stock currently has seven ‘buy’ ratings, four ‘outperform’ ratings, and four ‘hold’ ratings. This, coupled with an average share price target of £2.26 — a 31.4% premium to the current share price — is a good indication of value.

I’m also bullish on IAG shares. In fact, I think it’s one of the clearest examples of value within the civil aviation space. The firm is forecast to register earnings per share of 36.8p in 2024, 40.3p in 2025, and 43.7p in 2026. This means earnings are growing at around 5.8% annually.

In turn, that means IAG is trading at just 4.7 times forward earnings — far below the FTSE 100 average of around 14 times. This price-to-earnings ratio falls, based on expected earnings, to 4.2 times and 3.9 times in 2025 and 2026 respectively.

Debt is something of a concern, and this does account for the stock appearing cheaper than peers Ryanair and easyJet by some distance. City analysts believe the company’s net debt position will dip to €8.82bn in 2024 as cash flows remain robust.

The bottom line

There’s not a massive amount between easyJet and IAG when we take debt into account. The former trades at 3.1 times forward EV-to-EBITDA and the latter 3.3 times. Both of these are about half the price of US-listed Ryanair.

I certainly prefer IAG and easyJet over Ryanair. Momentum’s important, but Ryanair’s simply too expensive, in my view, despite buybacks and so on. Also, Ryanair has a fleet of Boeing 737s, and this could prove problematic unless the manufacturer’s issues are ironed out. IAG and easyJet both favour Airbus platforms.

If I had to pick one, it’d be IAG. City analysts finally agree with me, in that growth’s returning, and it has a more diversified portfolio than low-cost easyJet.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has positions in International Consolidated Airlines Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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